Recent guidelines from the Ministry of Power encourage private sector participation in the development of large hydro
projects. But there is little attention paid to past failures, or the possibility that many of those will recur in
new projects too, notes
Himanshu Thakkar.

10 June 2006 -

Despite a lot of goading by the Government of India since 1991, the private sector has in recent
years been reluctant to take up large hydropower projects (over 100 Megawatts). The 1998 'Policy of Hydropower Development' claimed,
without assigning credible reasoning that the ideal hydro-thermal mix is 40:60. In recent years the compound annual growth rate of
capacity addition for hydro projects (mostly because of public sector projects) has been higher than that for thermal projects, but power
generation performance of these projects have been far from satisfactory. To encourage private players to overcome their reluctance, the
Union Ministry of Power has on May 23 this year issued new guidelines. These are to provide long-term funding at reasonable interest
rates, so that the power tariffs during the initial years are lower.

The ministry hopes that the resulting tariff competitiveness will provide sufficient payment security
to financial institutions. A series of run-of-the-river hydroelectric projects [HEPs] are proposed for development by the private sector,
under these guidelines. The bidders would be selected on the basis of tariff-based bids. Competing bidders would be required to post a
bid bond of Rs.5-10 lakh per MW and a performance bond of Rs.10-20 lakh per MW. Failure to take up the project within a prespecified time
after the award would lead to a call on the bid bond. The project then would be awarded to the next qualified bidder. The performance
bond would be linked to achieving specified milestones in a predefined time frame.

Continuing emphasis on large storage

The desire for new production, however, is not matched by lessons from past projects. For instance, Sanjay Chadha,
Director in Ministry of Power, notes in the guidelines (the 'track-changes' feature identifies him as the author), "Moreover construction
of large storage dams is the most effective method for managing floods." This is a fairly tall claim, for firstly, unless storage
projects have space provided for flood cushion and they are indeed transparently operated to take advantage of such cushion, they do not
provide assured flood control benefit. These conditions do not apply to most storage dams in India. Secondly, the World Commission on
Dams makes it clear that large storage dams are not the most effective method of controlling floods.

Analysis by SANDRP shows that the power generation from every MW of installed capacity over the last twelve years
(from 1994-95 to 2005-06) has gone down by over 20%, according to the figures of Central Electricity Authority.

Moreover, large storage can be achieved in many ways, and does not necessarily require construction of dams. The existing
storage, in any event, is not fully used. It would help the ministry to look at the actual performance of existing storages, and also
observe their fast rate of siltation. This will place Chadha's uncritical advocacy under considerable strain.

According to an assessment done by the South Asian Network on Dams, Rivers and People (SANDRP) using the official figures of the Central Water Commission, of the monitored storage capacity of 133 BCM (Billion Cubic Meters) over the twelve years between 1994 and 2005, on an average, each year about 36.25 BCM - the equivalent of 7.7 Sardar Sarovar Projects - is not filled up. That means that on an average an investment of Rs.37,793 crores has remained idle in each of the last 12 years, despite the fact that in 7 of the 12 years rainfall was average or higher. The unmonitored storage will add to this failure. Also, as per the report of the National Commission for Integrated Water Resources Development (Govt of India, Sept 1999), about 1.4 BCM of existing storage capacity is getting silted up each year. At today's rates creation of this storage capacity would cost Rs.1448 crores; in effect each day we are losing the Rs.4 crores worth of storage capacity through siltation. And no effective action is being taken to stop this. Meanwhile, we find the ministry enthusiastic about more storage!

Illustration: Farzana Cooper

Private sector's poor record

The guidelines are intended for offering fresh concessions for the development of hydroelectric projects in private sector, whose listed
virtues include minimum delays, better capital and operating efficiencies, and the willingness to invest in in equity components of
projects.

The trouble is, if we look at the track record of private sector, we see that these are imaginary virtues. Over the last 15 years, when there has been a big push for the private sector to take up big hydro projects, only one project of over 100 MW has been completed, namely the 300 MW Baspa HEP in the Sutlej basin in Kinnaur district in Himachal Pradesh. However, this project has seen high capital cost, high cost overrun, high time overrun, long shut-downs, poor environmental and social track records, and a poor safety record in operation of the plant [1]. The only other private hydro project of substantial size completed over the last 15 years is the 86 MW Malana HEP in the Beas basin in Kulu district in Himachal Pradesh. This project again has seen a poor record of safe operation, long shutdowns, and poor social and environmental performance.

A look at a few other ongoing large hydro projects in private sector doesn't offer any more reason for optimism. The 400 MW Vishnuprayag HEP in Uttaranchal has had high cost and time overruns. The 400 MW Maheshwar project in Madhya Pradesh has remained stalled for five years due to the agitation by the affected people and by the mismanagement by the developer. The 1000 MW Karcham Wangtoo project in Himachal Pradesh also faces agitations by the affected people who have now stalled work on the project (see below). Nor is it true that developers bring additional resources. Most of the money invested in the project comes from financial institutions in the public sector.

Private power, public burden

The guidelines are candid in accepting that "most of the undeveloped hydro power sites are located in hill states which
are either surplus in power already, or whose ability to consume power would be much less than the hydro potential existing in the
State." But the ministry is undeterred; the guidelines urge that "the hill states possessing the hydro potential must therefore like to develop their hydro sites for sale of power to other areas and at the same time securing benefits like 12% free power for their own development."

The 12% being referred to stems from the Government of India Office Memorandum dated 17 May 1989, which provides for 12%
of the hydro power generated in a state to be provided free to the host government. While encouraging hill states to take advantage of this, the guidelines add a proviso: "In case of projects having unviable tariffs in the initial years, the 12% free power to the home state can be staggered in a manner such that it is kept low in the initial years and higher in the latter years so as to average 12% over the life of the project." This is likely to add to problems for the host state governments. Moreover, the guidelines also make states responsible for unanticiapted additional expenses on relief and rehabilitation beyond what is originally anticipated, thus further reducing the obligations of private developers.

Another lacuna is in the selection of private developers. Although the Power Ministry policy of 15 Feb 1995 is clear
that power projects could only be awarded to private developers through competitive bidding, the guidelines say that for HEPs over 100
MW, states can continue to develop the projects based on MOUs with the developers. Also, while the greatest opposition to dams today is
due to their high social and environmental costs, the guidelines offer no credible mechanism to ensure that these issues would be
addressed sincerely.

Himanshu Thakkar

10 Jun 2006

Himanshu Thakkar is with the South Asia Network on Dams, River and People.